Friday, May 20, 2011

The post-hoc or more formally the post-hoc ergo propter hoc, is a logical fallacy where one event precedes another event and is thus found to be the cause of the second event. The basic format can be expressed as:

P1. A came before B,
C. therefore A caused B.

A silly example would be "Roosters crow before the sun rises, therefore roosters crowing cause the sun to rise". A more common example would be "Bob installed some new software on his computer. The next time he turned on the computer it crashed. Bob concluded that the new software caused the computer to crash". Now it is entirely possible that the new software did cause the computer to crash, but it is also possible that a computer virus or possibly a power spike caused it to crash. The point is that a positive correlation alone is generally not sufficient evidence to prove causation. Post-hoc arguments are often even shakier than an incorrect inference from correlation to causation in that there is typically only one anecdote or event in which the inference is being made from.

Tuesday, May 17, 2011

Here is some interesting data from collegeboard.org on the ever increasing cost of college tuition. The data is in constant dollars, so the increases from year to year are in real dollar terms (adjusted for inflation). It's really amazing that the cost of tuition has almost tripled from 1980 to 2010. I feel sad for young people having to make the decision to incur large student loans, without fully realizing how it will effect them down the road. Most high school grads just haven't had enough life experience to understand the implications of their decisions in this area. That being said, one still has to wonder at what point does it become cost prohibitive to pursue a college education? (please forgive the formatting, I was having major problems making it presentable).

TABLE 4: Average Published Tuition and Fees in Constant 2010 Dollars, 1980-81 to 2010-11 (Enrollment-Weighted)

Sources: 1987-88 and after: Annual Survey of Colleges, the College Board, weighted by full-time undergraduate enrollment; 1986-87 and prior: Integrated Postsecondary Education Data System (IPEDS), U.S. Department of Education, National Center for Education Statistics, weighted by full-time equivalent enrollment.This table was prepared in October 2010.

Tuesday, May 10, 2011

Another prevalent decision making error, which goes by many names, is herd mentality. Herd mentality describes how people are influenced by their peers to adopt certain behaviors, opinions, trends, ideas, etc. There are thought to be many reasons why we as individuals may partake in herd mentality but the major influences are social acceptance, safety concerns, to avoid conflict (groupthink) and to avoid formal decision making (information cascade - if everyone is doing it, it must be ok).

The most common example I can think of is fashion. Every year new fashionable clothes come out and are adopted by a few celebrities only to be embraced by the majority shortly after. Though there may be other reasons for purchasing the new trend, I would say that the majority of people do it to be socially accepted. The funny thing about this is it causes people to wear clothing they would otherwise think was weird and would never pick on their own if it wasn't in fashion. Think about those pictures of yourself from years gone by (ow my goodness look at that outfit, what was I thinking!).

Herd mentality is often seen in the stock market. For example, in 1999 before the Internetbubble burst, people should have known that the build up was irrational and bound to collapse. Instead people kept pouring money in, in part because that was what everyone else was doing. This is fairly common in the markets (you know when your butcher and barber are talking about a stock, it is probably time to sell).

The thing about herd mentality is that following the herd doesn't necessarily mean that you are making a bad decision. Something I have noticed is that some people seem to have an anti-herd mentality. They automatically do the opposite of , or have the opposite opinions of the majority. I think the important point is that when making decisions, you need honestly ask yourself how much you are being influenced by this sort of thing vs. using more rational methods.